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2020

How they make money with real-estate (and why you don't)

They use leverage, you go into debt.

This is why you absolutely need to know who Nina and Ninja are.

Nina takes care of your credit-worthiness. Nina is wise, Nina prevents bubbles and Nina makes sure that you can afford your home. So you should always follow Nina's advices. Since the crisis of 2008, you don't even have the choice if you go to a bank to finance your piece of real-estate: German banks now make sure that you follow carefully the instructions given by Nina. Since the Wohnimmobilienkreditrichtlinie, they are obliged to do so. And for the huge majority of buyers, it is better so. Because Nina makes you trustworthy, proud and courageous.

But I know some of you will be frustrated to follow Nina's advice and you will be tempted to listen to Ninja instead. In fact, there are several ways to escape from the limited world allowed by Nina and the world described by Ninja is much bigger, much richer and much more powerful. Ninja opens you more opportunities, more possibilities, more adventures than Nina. Nina is annoying while Ninja deploys your potential. But Ninja has a problem: Ninja does not accept any mistake, any downturn, any problem. And Ninja makes you feel overconfident. Many people underestimate the damages that Ninja can make and we then find them at foreclosures. How sad! Because Ninja is very powerful. Ninja can ruine your life. Ninja can let you run into bankruptcy faster than you think. Ninja uses weapons that are much stronger than a sword.

Nina and Ninja are both immortal. They will always have fans and followers. But Ninja kills the weakest among them, whereas Nina never will.

Nina is a rule. A golden rule. Nina means "No Income, No Asset". It is that simple. And also very wise. If you cannot pay your monthly payments from your safe regular income, then you should not acquire the home. Nina asks you to step back.

Ninja is the opposite and opens many more possibilities. Ninja means "No Income, No Job: Asset!". It means that you buy a flat even without making sure you can afford the monthly payments. You don't have a job? No worry, buy real-estate with borrowed money because it leads to wealth, whereas Nina is just boring.

Is it really a wise way to invest? Of course no: Debt makes you a slave whereas leverage makes them rich. Where is the difference? Debt screws you for years, whereas they can jump off from their leveraged positions at any time with limited liability. And they have enough income from several sources to pay off the borrowed money quickly. You most likely bet everything on one asset with hard compliance-conditions.

You save for a down-payment, they invest from day 1.


You are saving money for the down payment and you are afraid of the low returns. Should you buy stocks?

When you see the return of the stock market on the long term, it looks like a better idea than your saving account.

But if this is enough to motivate you, why are you saving for a house? You could also keep going with the stock market instead of buying your home.

The stock market does not guarantee any yield and you may get some negative return on your investment.

Not only big crashes make stock-investors lose money. Often, a smaller downturn needs patience before the market recovers. In 2018, if you were invested in the stock-market, you would have probably lost about 20% of your investment.

If you had bought your flat earlier instead of relying on the market for that specific year, your asset would have probably gained value.

In fact, the stock market and real-estate don't correlate much, although cities like Munich correlate more with the DAX than some land-areas.

And this is the main reason why it may be fruitful to invest the money needed for the down-payment: Because the stock market and the housing market don't correlate much, it is theoretically possible to have a better return with stocks than with real-estate. At the time you buy, real-estate may be undervalued in comparison with stocks, which allows you to buy more housing for the same initial amount.

But this sounds too much like market-timing and you can't make sure to find the flat you dream of at the very correct time. The market can also decide that the odds are against you and you find your dream house when the market is low.

So, what about investing in some kind of real-estate based paper-assets? Doing so would kind of index your saving on something that will probably correlate with the housing you want to purchase. So you can't really outperform your goal doing so.

Of course, it is not fun to see low return on your savings while home-prices go up. But don't forget that stocks are (as well as real-estate) rather an investment for long-term investors who do know what they are doing and what risks they can afford.

If you are already saving for a down-payment, you are probably not such a long-term investor. If you really know what you are doing and why you do so, it is up to you. But if you are just tempted by some theoretical higher returns, rather be suspicious than gambling your home.